Modeling Succession on Irish Dairy Farms

This paper examines intergenerational succession on Irish dairy farms. The factors that influence the decision to enter dairying farming are examined using a binary choice logit model. Reasons that are frequently published in the popular farming press as being an obstacle to intergenerational succession are analysed and the significance of their effect is quantified. Results show that the level of education of the heir is the most significant factor in the succession decision. Heir's with third level education are 30% less likely to enter dairy farming than their second level only educated counterparts. The sizes of milk quota and income that are associated with high probabilities of succession are identified.Dairy Farming, Structural Change, Succession, Logit Model, Farm Management,

Analysing the Impact of Decoupling at a Regional Level in Ireland: A Farm Level Dynamic Linear Programming Approach

This paper describes a methodology to assess the impact of the decoupling of payments on Irish farms at a regional level. The methodology is based on a farm level dynamic linear programming model which optimises regional gross margin under a set of constraints. Regionally representative farms are selected using cluster analysis. The model maximises aggregate gross margins from all the farm types in a region allowing land and milk quota to transfer between farms within the region. The model is estimated for a baseline scenario, assuming no policy change, and under a decoupled scenario where farm payments are fully decoupled from production. An example of an impact study at the Border region in Ireland is presented in this paper to demonstrate the methodology.Decoupling, Linear Programming, Cluster analysis, Agricultural policy, Regional level, Agricultural and Food Policy,

Modelling the Impact of Decoupling on Structural Change in Farming: Integrating Econometric Estimation and Optimisation

Implementation of the Mid Term Review of the Common Agricultural Policy on farming in Europe is expected, and intended, to initiate structural changes in European agriculture. This impact of the agricultural policy reform will be triggered at the farm level with both up- and down-stream effects for agriculture in Europe. Modelling such a phenomenon is challenging. An integrated modelling approach, involving farm level optimisation models and exogenously estimated econometric models of farmer behaviour, is developed for Ireland; this framework is a general one and is applicable elsewhere. Entry and exit from farming, postulated as the main consequences of the policy reform, are estimated exogenously to determine their role in the allocation of farm labour. The results for Ireland show that farm numbers will decline more rapidly under decoupling relative to a baseline situation. Further, decoupling is likely to favour beef farming but, an increasing number of beef farmers will have to rely on outside income to sustain that system of farming. Dairy farmers will face a price cost squeeze and structural change in this sector will be accelerated.Common Agricultural Policy, Decoupling, Farm Level Modelling, Linear Programming, Succession, Labour Allocation, Agricultural and Food Policy, C6, Q12, Q15, Q58,

A prospect of moving towards free milk quota market in Ireland – will milk quota movement follow efficiency?

Quota trade in Ireland is ‘ring fenced’ to milk processors where farmers are not allowed to trade milk quota outside their designated milk processor. This ensures milk production staying within a region but has implications for the efficiency of milk production. In this paper, we simulated a free milk quota market in Ireland and compared the results with a milk quota exchange which was ring fenced to determine if the quota move from an inefficient region to a more efficient region. The results show that quota indeed follow efficiency of production when there is restriction over trade area.Milk quota trade, Irish quota market, Farm level model, Agricultural and Food Policy,

The Role of Risk in the Decision to Produce Post-Decoupling - A Stochastic Budgeting Example

Under the Mac Sharry and Agenda 2000 reforms, direct payments comprised a significant portion of farmers' income in the EU. Farmers had to engage in production to receive these payments but the payments were relatively risk-free and therefore risk may not have played an important role in the production decision. This paper considers the effect of the decoupling of direct payments from production in the EU and in particular, on the role of production risk in the decision making process. In an environment where direct payments are completely decoupled from production, farmers may engage in an 'entitlement farming' system, that is retain their land only to activate the decoupled payment and not actually produce any tangible goods. This paper examines the effect of production risk on the economic trade off between 'entitlement farming' and conventional farming. A stochastic budgeting model is developed for two representative farms. The model is used to measure the probability that the returns to the 'entitlement farming' system could be higher than the profit emanating from a conventional farming system given production risk. The results show that for the less efficient representative farm, the probability of achieving a significantly higher profit by engaging in entitlement farming is 46 percent, while further analysis shows that there is a 9 percent probability that profits from conventional farming systems would be only marginally higher than the 'entitlement farming' option.Decoupling, Risk Analysis, Production Risk, Decision Analysis, Stochastic Modelling, Agricultural and Food Policy, Risk and Uncertainty, Q12, Q18,

DEVELOPMENT OF THE UTILIZATION OF PASTORAL LAND IN THE EU 25 AFTER 2003

Farming systems based on products of roughage feeders are a vital part of the EU agricultural production. Up to the CAP reform in 2003 the EU promoted these systems via a wide variety of measures. This paper highlights the different impacts European, national and regional support measures have on the utilization of pastoral resources across the EU-25. Based on an expert survey and a literature review the paper summarizes the expected developments of pastoral farming systems across the EU.Pastoral Systems, EU, 2003 CAP Reform, Enlargement, Land Economics/Use,

The Economic Returns to Membership of a Dairy Discussion Group: Evidence from the Irish National Farm Survey

In December 2009 the Irish Department of Agriculture launched the Dairy Efficiency Programme. The Programme, which is operated through a series of discussion groups, is designed to promote technology transfer to dairy farmers. Drawing on National Farm Survey data from 2009, the purpose of this paper is to quantify the economic return to membership of dairy discussion groups. An endogenous switching regression model is specified for over 300 dairy farms to assess the impact of discussion group participation on farm gross margins. The results indicate self-selection into discussion groups, suggesting that „better‟ farmers tend to participate. Generally, younger farmers who operate larger farms are more likely to join discussion groups. Discussion group members have higher gross margins than non-members, but non-members could increase their gross margins if they join discussion groups. Overall, the findings confirm positive returns to discussion group membership, thus supporting the Dairy Efficiency Programme.Endogenous switching regression model, Discussion group membership, Dairy Efficiency Programme, Livestock Production/Industries,

The role of financing frictions in agricultural investment decisions: an analysis pre and post financial crisis

This paper uses a fundamental Q model of investment to consider the role played by financing frictions in agricultural investment decisions, controlling econometrically for censoring, heterogeneity and errors-in-variables. Our findings suggest that farmer's investment decisions are not driven by market fundamentals. We find some evidence that debt overhang restricts investment but investment is not dependent on liquidity or internal funds. The role of financing frictions in determining investment decisions changes in the post-financial crisis period when debt overhang becomes a significant impediment to farm investment. The evidence suggests that farmers increasingly rely on internal liquidity to drive investment. Finally, we find no evidence that farmers use on-farm capital to fund on-farm investment.Credit Constraints, Firm Level Investment, Tobin's Q, Debt, Agricultural Finance, G31, G32, F34,

Modeling Succession on Irish Dairy Farms

This paper examines intergenerational succession on Irish dairy farms. The factors that influence the decision to enter dairying farming are examined using a binary choice logit model. Reasons that are frequently published in the popular farming press as being an obstacle to intergenerational succession are analysed and the significance of their effect is quantified. Results show that the level of education of the heir is the most significant factor in the succession decision. Heir's with third level education are 30% less likely to enter dairy farming than their second level only educated counterparts. The sizes of milk quota and income that are associated with high probabilities of succession are identified